A key investor focus: Brazilian COGS inflation A key point of investor focus during ABInBev''s recent FY20 results was Ambev guiding to FY21 cash COGS/hl inflation in the low 20%''s for the Brazilian beer business. The purpose of this report is to contextualise this issue. The historical profits performance of Brazil has been very weak Over recent years, the operational performance of ABInBev in Brazil has been very weak. Over the past 5 years, underlying EBIT (ex. OOI) has declined at a -7% LFL CAGR, underlying EBIT margins (ex. OOI) have reduced by 16.7%-points and underlying EBIT (ex. OOI) in BRL is now lower than at any point over the last decade. While the macro has obviously played a big role in this, we suspect that the presence of a more meaningful competitor (we make implicit reference to Heineken''s acquisition of Kirin Brazil in 2017) has also had an impact. A clear illustration of why structurally we are not great fans of the beer sector. The 2021 outlook is not promising In FY21, ABInBev will be comping a year in which its Brazilian beer volume growth was the strongest for a decade. As to the macro, the poorest 30% of the population benefited from Covid voucher payments which are unsustainable (the payments have served to drive income inequality to record lows), consumer confidence is low, unemployment is high (c.14%) and the currency has plummeted (BRL/USD is now 31% below its trading level at the start of 2020). Furthermore, it is not just a 2021 issue With the BRL having declined by 11% against the USD since the start of the year, ABInBev''s Brazilian business is likely to face further material cost pressures in 2022. While we reduced our ABInBev earnings with recent FY20 results, we now believe that more caution is warranted. We revise our FY21e/FY22e EBITDA estimates by c.-4% and -6% respectively and now sit c.-2% and c.-3% below consensus.